The HECM for Purchase is a Federal Housing Administration (FHA) insured1 reverse mortgage that allows homeowners, 62 years and older, to use the equity from the sale of a previous residence, or loan proceeds from the reverse mortgage, to buy their next primary home in one transaction. No matter how long you intend on living in the home, or changes to the home’s value, you only make one initial investment (down payment) towards the purchase; the rest of the funds for purchase come from the HECM loan.
What are the Loan Eligibility Requirements?
To be eligible for a HECM for Purchase loan, the following criteria must be met:
- Borrower(s) must be 62 years or older;
- Purchased home must be a primary residence occupied within 60 days of loan closing;
- Property must be a single-family residence, an owner-occupied 2-4 unit home, a condominium approved by the Department of Housing and Urban Development (HUD), or a manufactured home that meets FHA guidelines;
- The difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of the prior residence, home buyer’s other assets, or savings;
- The borrower(s) must complete a HUD-approved counseling session.
What are the Loan Requirements?
For the loan to be considered in good standing, the following must be kept up:
- Maintain your home according to FHA requirements3;
- Continue to pay property taxes and homeowners insurance;
- Continue to own and live in your home as your primary residence.
What are the Benefits of a HECM for Purchase Loan?
A few of the benefits from a HECM for Purchase loan are:
- Eliminate your existing monthly mortgage payments2;
- Increase your purchasing power;
- Pay less up-front investment than a cash purchase;
- Right-size to a smaller home that requires less maintenance;
- Buy a home closer to family or friends;
- Lower your cost of living during retirement.
Are there Safeguards for Borrowers?
There are protections in place, so older adults know what to expect and can make an educated decision about a HECM for Purchase loan.
- Mortgage Insurance Premium (MIP) ensures the amount owed on the loan can never be more than the value of the home at the time of sale1;
- Independent HUD counseling is required before signing the loan application;
- The lender may only look to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value (non-recourse loan).
If you’re interested in finding out if you can benefit from a HECM for Purchase for your next home, call (800) 976-6211 to speak with a licensed loan advisor today.
1 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing, and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
2 Your current mortgage, if any, must be paid off using the proceeds from your HECM loan. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
3 If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this.